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Decision making l4

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Decision Making<br />Decision<br />Making a choice from two or more alternatives.<br />The Decision-Making Process<br />Identifying a problem and decision criteria and allocating weights to the criteria.<br />Developing, analyzing, and selecting an alternative that can resolve the problem.<br />Implementing the selected alternative.<br />Evaluating the decision’s effectiveness<br />10/1/2011<br />2<br />

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Problem <br />A situation in which the existing circumstances differ significantly from the preferred situation. <br />Types of Problems:<br />Crises Problem<br />A situation that urgently require an immediate decision.<br />No crises Problems<br />A situation that require decision but less urgently than a crises problem.<br />Opportunity Problems<br />A Situation that can be dealt with in a way that has a positive effect on the organization and its performance.<br />10/1/2011<br />3<br />

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Types of Programmed Decisions<br />Policy<br />A general guideline for making a decision about a structured problem.<br />Procedure<br />A series of interrelated steps that a manager can use to respond (applying a policy) to a structured problem.<br />Rule<br />An explicit statement that limits what a manager or employee can or cannot do.<br />10/1/2011<br />5<br />

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Problems and Decisions<br />Unstructured Problems<br />Problems that are new or unusual and for which information is uncertain or incomplete.<br />Problems that will require custom made solutions.<br />Nonprogrammer Decisions<br />Decisions that are unique and nonrecurring.<br />Decisions that generate unique responses.<br />10/1/2011<br />6<br />

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Decision-Making Conditions<br />Certainty<br />A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known.<br />Risk<br />A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives.<br />10/1/2011<br />8<br />

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Step 1: Identifying the Problem<br />Problem<br />A discrepancy between an existing and desired state of affairs.<br />Characteristics of Problems<br />A problem becomes a problem when a manager becomes aware of it.<br />There is pressure to solve the problem.<br />The manager must have the authority, information, or resources needed to solve the problem.<br />10/1/2011<br />12<br />

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Step 2: Identifying Decision Criteria<br /><ul><li>Decision criteria are factors that are important (relevant) to resolving the problem.</li></ul>Costs that will be incurred (investments required)<br />Risks likely to be encountered (chance of failure)<br />Outcomes that are desired (growth of the firm)<br />Step 3: Allocating Weights to the Criteria<br /><ul><li>Decision criteria are not of equal importance:

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Assigning a weight to each item places the items in the correct priority order of their importance in the decision making process.</li></ul>10/1/2011<br />13<br />

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An alternative’s appraisal is based on its ability to resolve the issues identified in steps 2 and 3.</li></ul>10/1/2011<br />14<br />

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Step 6: Selecting an Alternative<br />Choosing the best alternative<br />The alternative with the highest total weight is chosen.<br />Step 7: Implementing the Alternative<br /><ul><li>Putting the chosen alternative into action.

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Conveying the decision to and gaining commitment from those who will carry out the decision.</li></ul>10/1/2011<br />15<br />

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Step 8: Evaluating the Decision’s Effectiveness<br />The soundness of the decision is judged by its outcomes.<br />How effectively was the problem resolved by outcomes resulting from the chosen alternatives?<br />If the problem was not resolved, what went wrong?<br />10/1/2011<br />16<br />

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Making Decisions (cont’d)<br />Bounded Rationality<br />Managers make decisions rationally, but are limited (bounded) by their ability to process information.<br />Assumptions are that decision makers:<br />Will not seek out or have knowledge of all alternatives<br />Will satisfied—choose the first alternative encountered that satisfactorily solves the problem—rather than maximize the outcome of their decision by considering all alternatives and choosing the best.<br />Influence on decision making<br />Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong. <br />10/1/2011<br />20<br />

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Decision Making Styles<br />Types of Decision Makers<br />Directive<br />Use minimal information and consider few alternatives.<br />Analytic<br />Make careful decisions in unique situations.<br />Conceptual<br />Maintain a broad outlook and consider many alternatives in making decisions.<br />Behavioral<br />Avoid conflict by working well with others and being receptive to suggestions.<br />10/1/2011<br />24<br />

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Decision Making for Today’s World<br />Guidelines for making effective decisions:<br />Understand cultural differences.<br />Know when it’s time to call it quits.<br />Use an effective decision-making process.<br />Habits of Highly Reliable Organizations (HROs)<br />Are not tricked by their success.<br />Defer to the experts on the front line.<br />Let unexpected circumstances provide the solution.<br />Embrace complexity.<br />Anticipate, but also anticipate their limits.<br />10/1/2011<br />32<br />

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Characteristics of:An Effective Decision Making Process<br />It focuses on what is important.<br />It is logical and consistent.<br />It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking.<br />It requires only as much information and analysis as is necessary to resolve a particular dilemma.<br />It encourages and guides the gathering of relevant information and informed opinion.<br />It is straightforward, reliable, easy to use, and flexible.<br />10/1/2011<br />33<br />